Mkt to capitulate; Aug series may end near 5200: PhillipCap

Market internals like the current amount of volatility and price destruction are pointing to capitulation, says Vineet Bhatnagar, MD, PhillipCapital. The August F&O series which expires tomorrow is likely to end around 5200, he told CNBC-TV18 in an interview. He expects to see some cash buying in last 30 minutes of expiry tomorrow.

He further added that movement seen in India’ volatility index (VIX) is symptomatic of market nervousness and one can look at bottom formation for the Nifty around 4850-4900. Meanwhile, the Bank Nifty, which has been battered, courtesy slowdown in the sector and depreciating rupee, is unlikely to fall sharply from the current levels, he added. Bank Nifty, the barometer of banking stocks has fallen nearly 32 percent since May 17. Below is the edited transcript of Vineet Bhatnagar’s interview with CNBC-TV18 Q: Where does this expiry look like taking the contract to? At the moment it is a precipitous fall and we are just clinging to 5200? A: These are not the days of the mornings when one would like to put on the hat of a forecaster. But our own assessment is that tomorrow which is the expiry day should result in expiration around 5200. So we are really not looking at the expiry to happen tomorrow very far away from where the index is today and that is primarily because the amount of volatility as well as the price destruction that we have seen yesterday as well as this morning perhaps is really pointing towards a capitulation which would happen by tomorrow. Q: What is the sense that you are getting about the September series now? What could the range move down to?  A: There could be VWAP related cash buying in the last half hour tomorrow and therefore expiration could be at around 5200. Thereafter it doesn’t seem to be any kind of a stop that we see between 5210 which is a trend line support looking to be breached as an intraday low for today. 4850 or 4900 thereabouts was May 2012 low. There is really an opening up of about 150 points on Nifty that still looks possibly in early September trades. Q: The rollovers just indicated 38 percent compared to a normal average of a little over 41 percent. What does this tell you in terms of what might happen in the last day of trade? Would you see aggressive roles starting now or do you think people will try to square of positions?  A: We started this particular month of August where in the Foreign Institutional Investors (FIIs) as an institutional segment for index Futures were net long by about USD 250-300 million. That position has now started looking like a net short of about USD 450-500 million. Looking at the next short positions that FIIs have built in the last few trading sessions, their sense or their attempt would be to rollover on the short side if the short appears to be the order of the day tomorrow or today. It is quite tactical that the rollover is looking less than average on Wednesday morning, but it could start speeding up between today and tomorrow. Clearly what we are looking at is the short rolls to happen if this particular downside momentum were to continue in the assessment of the FIIs as traders.